(Bloomberg) — AMC Entertainment Holdings Inc. extended Wednesday’s surge in premarket trading as the Reddit retail-trading army continued to gorge on the stock, sending it to heights that has left Wall Street pros perplexed.
After rising 95% to a record high in the last regular session, AMC gained 13% to $71.01 as of 4:02 a.m. in New York. The money-losing movie-theater chain has a market value of more than $30 billion, making it more valuable than at least half of the companies in the S&P 500 Index.
While most financial commentators agree that the stock has detached itself from traditional investment fundamentals, they are less sure of the reason. Some cite an abundance of liquidity and savings created during the pandemic, while others point to the impact of social media in providing a platform for small investors to egg each other on.
“Of course their valuation is disconnected from fundamentals, the prices are more a reflection of the impact of social media,” said Sylvain Goyon, a strategist at Oddo. “The shares rise with the hype and die without it.”
The latest meme stock frenzy appears to have even greater momentum behind it than that of GameStop Corp. back in January. Some Twitter users reported receiving text messages from family members urging them to buy AMC stock as a way to get rich, while other people gathered at street corners with homemade posters saying “AMC 2 Da Moon” and promoted the stock at pool parties.
As of Wednesday’s close, AMC stock had risen almost 30-fold since the start of this year, far exceeding GameStop’s 15-fold increase. Going back to the beginning of 2020, the shares recently surpassed the performance of Zoom Video Communications Inc., whose video-conferencing technology became ubiquitous during the pandemic.
Just a few short months ago, AMC was on the brink of bankruptcy as the pandemic shuttered cinemas across the U.S. Its market capitalization stood at just $216.8 million in April of last year. Even after the brief surge in January, many professional investors still pooh-poohed the idea that anyone on Reddit’s WallStreetBets forum could be taken seriously, much less move the market in a sustainable way.
“The meme stock phenomena is coming back with a vengeance after a two-month pause,” said Charles-Henry Monchau, the chief financial and chief investment officer at FlowBank SA.
AMC announced this week that it will reward the small-time supporters with goodies such as special screenings and free popcorn. It’s also taken advantage of meteoric gains to raise $230 million directly from one of its main creditors, Mudrick Capital Management, and shore up its finances.
“When a fresh pile on, sparked by the offer of free popcorn, leads to a doubling of the share price in just a day, it shows a huge disconnect between price and underlying value,” Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said by email.
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